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Stash Some Cash in Bitcoins?

Posted in Currency Trading

In his August 2014 paper entitled “Bitcoin Myths and Facts”, Campbell Harvey examines eight claims about bitcoin. One of these claims is that bitcoin is currently too volatile to serve as a store of value. Using daily data for the dollar-bitcoin exchange rate during mid-July 2010 through mid-August 2014, he finds that:

  • Over the last four years, Bitcoin is about eight times┬ámore┬ávolatile than gold and the U.S. stock market and 18 times more volatile than the U.S. dollar.
  • Over the last 12 months, the standard deviation of daily bitcoin returns in U.S. dollars is a little over 6%.
  • The worst (second worst) daily return for the S&P 500 Index since 1957 is -20.5% (-9.0%) on October 19, 1987 (October 15, 2008). Over the last four years, bitcoin has returns lower than -20.5% (-9.0%) on 13 (78) days.

In summary, its extreme volatility makes bitcoin an unreliable store of value, even for a single day.

The history of bitcoin is very short for any annualized perspective. Bitcoin also offers limited capacity.

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